OREANDA-NEWS. Fitch Ratings has assigned Wuxi Construction and Development Investment Co., Ltd.'s (WCDI) USD300m 3.25% notes due 2019 a final rating of 'BBB+'. The net proceeds of the proposed issue will be used for WCDI's infrastructure construction business, repayment of outstanding debt and general corporate purposes.

The notes were issued by Xihui Haiwai I Investment Holdings Co., Limited (Xihui Haiwai I), and are unconditionally and irrevocably guaranteed by Xihui International Co., Limited (Xihui International), a wholly owned subsidiary of WCDI. The notes are senior unsecured obligations of Xihui International and rank pari passu with all of its other senior unsecured obligations.

In place of a guarantee, WCDI has granted a keepwell and liquidity support deed and a deed of equity interest purchase undertaking to ensure that Xihui International has sufficient assets and liquidity to meet its obligations under the guarantee for the notes.

The notes are rated at the same level as WCDI's IDRs (BBB+/Stable), given the strong link between Xihui International and WCDI, and because the keepwell and liquidity support deed and deed of equity interest purchase undertaking transfer the ultimate responsibility of payment to WCDI.

In Fitch's opinion, both the keepwell and liquidity support deed and the deed of equity interest purchase undertaking signal a strong intention from WCDI to ensure that Xihui International has sufficient funds to honour the debt obligations. The agency also believes WCDI intends to maintain its reputation and credit profile in the international offshore market, and is unlikely to default on its offshore obligations. Additionally, a default by Xihui International could have significant negative repercussions on WCDI for any future offshore funding.

The final rating follows the receipt of documents confirmation to information already received and is in line with the expected rating assigned on 13 June 2016.

KEY RATING DRIVERS

Credit-Linked to Wuxi Municipality: WCDI is credit-linked to Fitch's internal assessment of the municipality of Wuxi in eastern China. The link is reflected in WCDI's 100% ownership by the municipality, municipal oversight of its financial, and the strong policy role its public-sector business plays in Wuxi. These factors mean there is a high likelihood that the Wuxi authorities would extend WCDI extraordinary support, if needed. Therefore, WCDI is classified as a credit-linked public-sector entity under Fitch's criteria.

Wuxi's Strong Creditworthiness: Wuxi is a part of the province of Jiangsu, which is one of China's strongest economic regions in terms of gross regional product (GRP). The GRP and GRP per capita of Wuxi rank 14th and 4th, respectively among its peer municipalities in China. The Wuxi municipality has strong fiscal budget performance, a diversified socioeconomic profile and strategic location as the centre of the Yangtze River Delta economic zone, one of China's top three economic zones.

Legal Status Attribute Mid-Range: WCDI is a wholly state-owned limited liability company under China's Company Law. Under this legal status, major decisions of the company would require verification and approval from the municipal government. The municipal government has no plan to dilute its shareholding in WCDI.

Strategic Importance to Municipality: WCDI is Wuxi's major urban public infrastructure development and investment platform, and plays a very important role in implementing Wuxi's urban development blueprint. WCDI is mandated by government for development of municipal roads and bridges, landscaping, sewage treatment of Taihu Lake, water conservancy, among others. Fitch assesses WCDI's Strategic Importance attribute as Stronger.

Tight Control By Government: WCDI is wholly owned by Wuxi government, and directly reports to the Wuxi Department of Finance. The company's directors and senior management are mainly appointed by the municipal government, and its major decisions need the government's approval. Its financing plan and all debt issues require government approval. The Control attribute is assessed at Stronger.

Extension of Government: The majority of WCDI's assets are government projects, which are fully covered by build-and-transfer contracts with the Wuxi government. The account receivables are all due from the government, and Wuxi has already included them in the fiscal budget for 2015-2017. As a result, Fitch assesses WCDI's level of integration into the municipal government budget to be Stronger.

Weak Financial Profile: The EBITDA to interest coverage was less than 0.1x for past three years, and gross margin is set at 1% by Wuxi government, leaving the company with a very weak standalone credit profile, reflecting its public sector mission. Nevertheless, WCDI's debt and interest obligations are principally serviced by government repurchases under BT contracts that are funded by the municipality's fiscal budget. The company is highly leveraged, and the capex will stay high. It is unlikely that the company will be able to improve its standalone credit metrics. However, the risk is mitigated by the committed stable support from the Wuxi government.

RATING SENSITIVITIES

An upgrade of Fitch's internal assessment of Wuxi municipality as well as stronger or a more explicit support commitment from the municipality may trigger positive rating action on WCDI.

Significant weakening of WCDI's strategic importance to Wuxi municipality, dilution of its shareholding, and/or reduced municipality support, may result in a downgrade; likewise, a downgrade could also stem from weaker fiscal performance or increased indebtedness at Wuxi, leading to deterioration in Fitch's internal assessment of Wuxi's creditworthiness.

A rating action on WCDI would lead to a similar action on the proposed US dollar notes.